Sun-Times can be saved, says CEO
“The days of a newspaper company running 20% to 35% margins are over and they will not return,” said Chairman Jeremy Halbreich, who joined the Sun-Times Group early this year, promptly filed for Chapter 11 bankruptcy protection and then launched the search for a buyer with the guts and financial firepower to try to save the scrappy Chicago tabloid.
Having found a purchaser in the form of financier James C. Tyree and a group of still-unidentified private Chicago-area investors, Halbreich believes the Sun-Times Group has the capability by the end of 2011 to generate the 5% to 7% operating margins associated with a “typical industrial and manufacturing business,” he said in a telephone interview.
Although Halbreich declined to spell out the financial projections underlying his optimism, he said he expects the company will stop burning cash by the end of this year, thanks to past and future operating efficiencies that he already has identified. “Most of 2010 will be flat to down,” he said, adding that the company will not experience anything “along the lines” of the enormous operating losses it has suffered in recent years.
The Sun-Times Group, whose shares trade for less than a penny apiece on the Pink Sheets and whose market capitalization dropped 20% to $671.585 Wednesday on news of the pending sale, stopped reporting its financial performance to the Securities and Exchange Commission as of Dec. 31, 2008. But its sales at the end of 2008 had fallen to $323.8 million from $418.7 million as recently as 2006. Worse, the company’s pre-tax loss of $381.3 million in 2008 surpassed its revenue.
The company had a mere $19.3 million in the bank at the end of July after losing $3.8 million in the month. With the pending sale of the company requiring bankruptcy court approval, it may not be until the end of this month before the new owners take control, leaving the company close to running out of working cash.
But Halbreich, who expects to remain as the chief executive of the company for the new owners, says Tyree’s group has committed to making an eight-figure investment in the company to cover near-term operating losses and to fund a number of initiatives to bring new efficiencies to the business.
“As arguably brilliant as the powers here were 8 to 10 years ago when they put together the collection of our dozens of suburban newspapers, they literally did not do the job of consolidating the properties and taking advantages of the obvious synergies,” said Halbreich.
“To this day, we still handle payroll off five or six separate systems leading to lots of duplicated overhead,” he continued. “We sell ads in multiple titles to the same individual advertiser and the advertiser then receives a separate bill from each publication. We have no ability to send out a single bill.”
Until the company this year took steps to consolidate most printing operations at a single plant south of the city’s Loop, the company divided production for its 58 suburban papers among a several separate plants. “Although we just announced the closing of the Northfield printing plant (in the city’s North Shore suburbs), we will not start getting the benefit of those savings for three months,” said Halbreich.
Other elements of Halbreich’s turnaround plan include the increase earlier this year of the price of a single copy of the Sun-Times to 75 cents, a plan to permanently implement the “temporary” 15% pay cut that union employees accepted during the hunt for a new buyer, a plan to save newsprint costs by slimming down the size of newspaper pages and a plan to modernize the company’s outmoded editorial-production systems.
On the revenue side, Halbreich said he and his management avoided making “sanguine” assumptions about future growth. “Ours is not a situation where revenues turn up with new ownership,” he said, adding that several prospective purchasers complimented him on the conservatism of his revenue forecast.
“We will have to restructure the business to match the reality of today’s revenue picture,” he continued. “We will have an easier task than most metro papers for a couple of reasons. First, none of the available operating synergies has yet been undertaken. Second, the Sun-Times has fewer layers of the management, bureaucracy and embedded systems than exist at most other metros.”
Halbreich took exception to my assertion in prior posts that the flagship Sun-Times probably was losing advertising market share as the result of the weak economy. Although the No. 2 newspaper in a city typically loses more ad share than the dominant paper in a down economy, Halbreich that has not been the case at the Sun-Times.
On the contrary, he stated, the Sun-Times in five of the last six quarters has gained ad share over the Chicago Tribune and the Daily Herald, an independently owned group of suburban newspapers. Halbreich said a confidentiality agreement with the competing publishers prevented him from providing the data to back up his assertion. (Note: This paragraph has been corrected, because in the original post, I said last five to six months, not quarters.)
One measure of Halbreich’s confidence in his turnaround plan is that he said he will be shopping for a permanent residence in Chicago if the company successfully exits bankruptcy and is taken over by the Tyree group. A former top executive of the Dallas Morning News, he has been commuting from Texas and living in a Chicago hotel since being appointed interim CEO of the company in February.
When he is not busy touring condos, though, Halbreich vows to “look under every rock and stone” to find what it takes to make the Sun-Times succeed.